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Hague Agreement further enhances U.S. design patents’ value

Design patents are one of the better values among the various forms of intellectual property protection available in the United States. Design patents’ value and effectiveness increased on May 13, 2015, when the United States’ accession to the Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs (Hague Agreement) entered into force. New U.S. design patents gain an additional year of life, and foreign filing has become much easier.

Utility patents protect the functional aspects of a product, machine or device, but not its appearance or ornamentation. Design patents protect the ornamental features of any “article of manufacture,” including consumer and industrial articles as diverse as industrial machines and parts, power tools, building products, office supplies, furniture, shoes, beverage containers, graphical user interfaces and mobile device displays. For example, in 2013 Apple was awarded $399 million in damages for Samsung’s infringement of three design patents covering Apple’s iPad and iPhone display screen face, display screen and bezel shape, and the manner in which icons are displayed.

A design patent can cost-effectively protect and increase market share. It can enable a company to establish a foothold for a new product, machine or device that has a new and unobvious appearance, and can be especially effective to prevent knock-offs intended to look like the original. In addition, the allowance rate for U.S. design applications is high, the cost to file and prosecute the applications is relatively low, design patent validity can be more economically defended, and design patents can provide remedies not available under utility patents.

Design patents’ benefits were enhanced on May 13 when the United States’ accession to the Hague Agreement went into force. Here are five reasons why design patents are a good value.

Over 74 percent of design applications issue as patents, and design patent prosecution takes less time and money than utility patent prosecution.

Like utility patents, design patents provide exclusive rights in inventions, but they are far easier and less costly to obtain. USPTO statistics reveal that during the period 2005 to 2014, design applications were allowed 74.2 percent of the time, measured by the percentage of grants versus total applications. Only 42.8 percent of utility applications were allowed during the same period.1For the first three months of 2015, the USPTO calculates the design patent allowance rate at 89 percent.2

Design applications also require less verbal description and undergo less arduous examination than utility applications. According to USPTO statistics for March 2015, the average pendency of design applications was 18.1 months, compared to 28.6 months for utility applications. Id. In addition, utility applications often require continued examination, which can increase their average pendency to 37.8 months.

The relative ease with which design patents are issued reduces applicants’ costs. According to the AIPLA, the median cost of preparing a design patent is $1,500, versus $6,500 for a utility patent of average complexity.3 Based upon current undiscounted filing and issue fees of $1,320 for design patents and $2,560 for utility patents, the estimated overall cost of obtaining a typical U.S. design patent is about $2,800, versus $9,100 or more for a U.S. utility patent. Even where both applications are allowed without rejection, a design patent’s cost can be as low as 30 percent of that of an average complexity utility patent.

There are no post-issuance docketing and maintenance fees for design patents.

Holders of U.S. utility patents must pay substantial maintenance fees prior to the 4th, 8th and 12th anniversaries of issuance, with current undiscounted fees totaling $12,600. Failure to pay causes the patent to expire prematurely, and a petition and substantial petition fee is required to reinstate it. As of September 2012, about 10 percent, 30 percent and 50 percent of issued utility patents expired due to nonpayment of the 4th, 8th and 12th year fees, respectively.4 Thus it is important to docket multiple far-off due dates and periodically evaluate whether a utility patent’s value warrants its maintenance costs. U.S. design patents do not require the payment of maintenance fees and cannot be subjected to such fees under existing law.5

Design patent litigation is less complicated and costly.

Design patent claims do not require the linguistic precision of utility patent claims. A design patent claim simply identifies the article illustrated in the accompanying patent drawings as the thing patented. A utility patent claim, on the other hand, involves a precise verbal recitation of the invention’s claimed features. As a result, infringement and validity assessments are more subjective in design patent cases than in utility patent cases. The Federal Circuit tacitly sanctioned a more subjective approach in Egyptian Goddess, Inc. v. Swisa, Inc. (2008) when it held that district courts need not hold Markman hearings to construe the meaning of design patent claims, as is almost always the case in utility patent litigation, and admonished district courts that attempts to precisely characterize patented designs in words may in fact be unhelpful and counterproductive. Parties to a design patent infringement case are likely to win or lose infringement and validity arguments at a higher, less fact-intensive level than in utility patent cases, and developing and making claim scope, infringement and validity arguments is less time-consuming and less expensive.

The nature of the test for infringement also makes design patent litigation less complicated. Egyptian Goddess requires district courts to employ the “ordinary observer” test, under which the patentee must prove infringement by showing that an ordinary observer, giving as much attention as a purchaser usually gives, finds the patented design and the accused design to be “substantially the same,” so that the resemblance “is such as to deceive such an observer, inducing him to purchase one supposing it to be the other.” Gorham Manufacturing, Inc. v. White, U.S. Supreme Court (1871). In design patent cases, infringement thus involves a one-time assessment of scope. See Pacific Coast Marine Windshields Ltd. v. Malibu Boats, Federal Circuit (2014). In the case of utility patents, the court may be required to assess claim scope twice. On a first level, utility patent infringement is determined based on the claim’s literal language. Alternatively, utility patent infringement can be found under the so-called “doctrine of equivalents.” Determining the doctrine’s applicability and the resulting breadth of the expanded claims requires resolution of parties’ conflicting analyses of the claims, prosecution file history and expert testimony on often complex issues of fact. The one-level claim analysis tends to make design patent cases simpler, less time-consuming and less expensive.

Design patent litigation costs can also be reduced by the patent owner’s ability to claim the infringer’s profits, as discussed more fully below. Proving the amount of an infringer’s profits is sometimes easier and more productive than proving damages in utility cases.

Finally, unlike some inventions protected by utility patents, patented designs are unlikely to be attacked as ineligible subject matter under 35 U.S.C. §101.

U.S. patent law allows both design and utility patent owners to claim compensatory damages, injunctive relief, attorneys’ fees and enhanced damages, but design patent owners have more options when proving actual damages. Any prevailing patentee is entitled to a reasonable royalty and can recover its own lost profits if it proves the infringement caused the loss.6 Lost profits typically exceed the amount of reasonable royalties, but utility patent owners more often than not must settle for reasonable royalties. Fortunately for design patent owners, 35 U.S.C. §289 – specific to design patents – allows for damages in the amount of an infringer’s “total profit,” a term that has been construed to mean profit without apportionment relative to other product features. The Federal Circuit is now reviewing the meaning of “total profit” following Samsung’s petition for review of Apple’s $399 million design patent damages award, where damages were based on Samsung’s entire profit on infringing sales.7Regardless of the outcome, design patent owners will retain a special advantage in being able to claim infringers’ profits in some amount.

A patentee can seek utility patents for an article’s functional features while pursuing design patents for its ornamental features. Obtaining both types of protection provides a patentee with greater flexibility regarding enforcement and damages. Where an article is protected by both, a patentee has the opportunity to prevail under one even if its claim under the other fails. If the patentee prevails on both, it can pursue the measure that produces the highest award, whether a reasonable royalty, the patentee’s lost profits or the infringer’s profits. Given the Federal Circuit’s increasing emphasis on apportioning the royalty base when assessing a reasonable royalty, damages based on the infringer’s profits may be the most significant and easily provable measure of damages.

The Hague Agreement increases design patent terms and decreases the cost and complexity of extending rights to Europe, Asia and elsewhere.

Prior to May 13, U.S. design patents were valid for 14 years, and applicants seeking foreign rights were required to file separate applications in each patent office where protection was desired within six months of the U.S. filing date, which typically necessitated assistance from foreign counsel at substantial additional cost. In contrast, the Hague Agreement provides for a 15-year term and allows an applicant to file one design application, in English, that is examined for compliance with formalities by the International Bureau of the World Intellectual Property Organization (WIPO).8

In contrast with utility applications filed under the Patent Cooperation Treaty, design patent applicants must designate where protection is ultimately desired and pay associated fees at filing.9 However, total fees are likely to be less than the cost of filing separate applications in multiple jurisdictions. After an international application passes initial examination, the International Bureau registers and publishes it.10 International publication may sometimes be deferred,11 but ordinarily occurs about six months after registration.12

Designated contracting parties may examine the application for substantive requirements such as the naming of inventors, compliance with drawing requirements and standards, and use of photographs and color,13 as well as inventiveness over the prior art. Further prosecution of an application takes place under the contracting party’s rules and procedures and may require foreign counsel.14 However, applicants only need to engage foreign counsel on a case-by-case basis, and only after an opportunity to review any grounds of refusal based upon prior art.15

The Hague Agreement will simplify and reduce the cost of securing foreign protection for designs. Participation in the Hague Agreement is not as widespread as participation in the Patent Cooperation Treaty – countries such as Canada, Mexico and China have not signed on. But the United States’ accession is expected to speed adoption by others.

Conclusion

It is worth taking another look at the often-overlooked design patent, which provides powerful, cost-effective protection in its own right and can enhance protection for important products, machines and devices that are also protected by utility patents. Now the Hague Agreement increases the design patent term and makes it easier and less costly for U.S. design patent owners to expand the geographic scope of their rights to most of the industrialized world.

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